Net income remained strong at $399.8 million, and credit quality remained strong at 99.5 percent acceptable.
ST. PAUL, Minn., Thursday, November 9, 2017 – Today St. Paul-based AgriBank announced financial results for the third quarter of 2017, with strong net income, strong credit quality, and robust liquidity and capital.
HIGHLIGHTS:
- Strong net income: Net interest income increased, but was offset by decreases in non-interest income, resulting in a slight decrease in net income of $5.7 million, or 1.4 percent, to $399.8 million for the period ended September 30, 2017, compared to the same period of the prior year.
- Strong credit quality: Total loan portfolio credit quality remained strong, with 99.5 percent of loans classified as acceptable. While remaining sound, the credit quality of our retail loan portfolio (accounting for approximately 10 percent of our total loan portfolio) decreased slightly to 95.0 percent acceptable at September 30, 2017, compared to 95.5 percent acceptable at December 31, 2016.
- Robust liquidity and capital: Cash and investments totaled $15.3 billion at September 30, 2017, compared to $16.0 billion at the end of last year. End-of-the-quarter liquidity was 148 days, well above the regulatory requirement. Capital also remained well above the regulatory minimum and company targets.
YEAR-TO-DATE 2017 RESULTS OF OPERATIONS
Net interest income increased to $443.5 million for the nine months ended September 30, 2017, compared to $425.7 million for the same period of the prior year, primarily due to increased interest rates on wholesale loans, as well as increased loan volume.
Provision for loan losses was $6.5 million for the nine months ended September 30, 2017, compared to $5.5 million for the same period of the prior year.
Non-interest income decreased to $55.3 million for the nine months ended September 30, 2017, compared to $77.8 million for the same period of the prior year. This decrease was primarily driven by decreased fee income in addition to non-recurring net gains of $10.2 million that were realized on sales of available-for-sale investment securities during the first nine months of 2016. This decrease was partially offset by increased mineral income, due to higher oil and gas prices and leasing activity.
THIRD QUARTER 2017 RESULTS OF OPERATIONS
Third quarter 2017 net income was $132.2 million, a decrease of $13.1 million, or 9.0 percent, compared to the same period of the prior year. This decrease was driven by decreased fee income in addition to decreased non-recurring net gains on sales of available-for-sale investment securities.
LOAN PORTFOLIO
Total loans were $87.2 billion at September 30, 2017 an increase of $1.1 billion, or 1.3 percent, from year-end 2016. The increase in the wholesale loan volume was due to increased real estate mortgage and agribusiness loan volume at District associations and has moderated compared to the prior year.
The capital position and earnings of the District Associations are reflected in the strong credit quality of the AgriBank portfolio with 99.5 percent loans classified as acceptable as of September 30, 2017. Loans classified as acceptable represent the highest-quality assets. Credit quality remains relatively consistent with the position at December 31, 2016. The credit quality of AgriBank’s retail loan portfolio moderated slightly to 95.0 percent classified as acceptable at September 30, 2017, compared to 95.5 percent at December 31, 2016.
AGRICULTURAL CONDITIONS
AgriBank’s loan portfolio performance is significantly driven by the financial performance of the agriculture production sector. The U.S. Department of Agriculture’s Economic Research Service (USDA-ERS) projects net farm income for 2017 to increase $1.9 billion, or 3.1 percent, to $63.4 billion for 2017, from the final 2016 estimate of $61.5 billion. However, projected net farm income for 2017 is down as compared to the last 5 year average of 2012 through 2016 of $91.1 billion. The increase in net farm income in 2017, as compared to 2016, is primarily driven by an increase in cash receipts from livestock and livestock products. Most of this increase is expected to come from higher cash receipts across most sectors, but are expected to be partially offset by decreased value of inventories and increased operating costs.
An improving outlook for the U.S. economy is expected to support domestic demand for most agricultural commodities in 2017 and forward. The primary area of risk will remain the export side of the demand equation, with a strong dollar and ongoing uncertainty surrounding the future of U.S. trade policy.
Producers who are able to realize cost and marketing efficiencies are most likely to adequately adjust to the current low price environment. Optimal input usage, adoption of cost-saving technologies, and effective utilization of hedging and other price risk management strategies are all critical in yielding positive net income for producers.
CAPITAL RESOURCES AND LIQUIDITY
Total capital remains very strong, increasing $232.7 million during the year to $5.7 billion, driven primarily by stock and participation certificate issuances as a result of loan growth. Net income was substantially offset by patronage distributions declared as a result of the capital plan implemented in July 2017.
Cash and investments totaled $15.3 billion at quarter-end, compared to $16.0 billion at the end of 2016. The Bank’s end-of-the-period liquidity position represented 148 days coverage of maturing debt obligations, which supports AgriBank’s operational demands, and is well above the 90-day minimum established by AgriBank’s regulator.
Effective January 1, 2017, the regulatory capital requirements for Farm Credit System Banks and Associations were modified. The revised requirements are intended to be comparable to the Basel III framework, while considering the cooperative structure of the Farm Credit System, and to improve transparency and ensure institutions hold sufficient capital to fulfill their mission as a government-sponsored enterprise. As of September 30, 2017, AgriBank exceeded all regulatory capital minimum requirements, including additional regulatory buffers.
ABOUT AGRIBANK
AgriBank is one of the largest banks within the national Farm Credit System, with over $100 billion in total assets. Under the Farm Credit System’s cooperative structure, AgriBank is primarily owned by 14 Farm Credit Associations. The AgriBank District covers America’s Midwest, a 15-state area stretching from Wyoming to Ohio and Minnesota to Arkansas. With about half of the nation’s cropland located in the AgriBank District and over 100 years of experience, the Bank and its Association owners have significant expertise in providing financial products and services for rural communities and agriculture. For more information, please visit www.AgriBank.com.
FORWARD-LOOKING STATEMENTS
Any forward-looking statements in this press release are based on current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from expectations due to a number of risks and uncertainties. More information about these risks and uncertainties is contained in AgriBank’s annual report. The Bank undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
